A FUTURE Scottish Government should "proceed cautiously" in putting up income tax, given the "revenue risk" posed by the reaction of the country's highest earners, an economist has warned.

Holyrood will be able to set a Scottish rate of income tax from April 2016, with further powers to vary both rates and bands due to be devolved in April 2017.

This would allow it to set a new top rate of income tax beyond the current 45 per cent UK higher rate without also having to increase the existing basic and standard rates.

The Scottish Parliament's Finance Committee heard those who earn the most would be the most likely to react if taxes are increased.

Professor David Bell, of the University of Stirling , told the committee: "Changes in taxpayer behaviour are difficult to predict.

"One finding on which there is agreement is that increases in taxes lead to reductions in taxable income.

"This could take a number of forms: taxpayers may reduce their hours, drop out of the labour market, retire or even emigrate. All of these responses lead to lower receipts on other taxes as well as income tax.

"Alternatively, taxpayers may reduce their effort at their workplace or negotiate higher wages to offset their higher taxes, and that will lead to lower profits.

"Finally, they may seek to avoid tax by reclassifying their income as, for example, profits and this would lead to a transfer of tax receipts from Scotland to the rest of the UK."

The SNP and Labour both pledged to re-introduce the 50 per cent top rate of tax for people earning more than £150,000 at the general election in May.

Prof Bell said: "The group most likely to change their behaviours are the very highly-paid. Scotland gets about 20 per cent of its total income tax revenue from the top 1 per cent of earners.

"That means it faces considerable revenue risk if this group alters their behaviour.

"To me, this suggests that the Scottish Government has to proceed cautiously when considering significant changes to the structure of income tax in Scotland.

"It is also worth bearing in mind that the perception of Scotland as a high tax jurisdiction not only might effect the behaviour of Scottish taxpayers, but also skilled migrants who might come to Scotland and have the potential to boost the economy."